With the Tax Cuts and Jobs Act a new deduction for pass-through business income was created (LLC, S Corp, Partnership and Sole Proprietorship income). The deduction allows for a 20% deduction of qualified business income. There are a few limitations, but in general this means that 20% of business net income can be a deduction on the owner’s personal tax return. *
Before the Tax Cuts and Jobs Act a C Corporation had a range of tax rates between 15% and 35%. After the Tax Cuts and Jobs Act the corporate rate is now a flat 21%. For most large corporations this is a win with a lower tax bracket, but if you were operating as a C Corporation with net profits less than $50,000 this is an increase of 6%.
For this reason we are seeing:
- An increase in the Formation of LLCs (Liability protection; lower fees overall; less paperwork).
- An increase in new Corporations electing S Corp status
- Existing Corporations making elections from C Corp to S Corp status with the IRS
Sole Proprietorships are not recommended in an asset protection strategy. With a Sole Proprietorship there is no protection for personal or business assets.
Why use a Wyoming LLC?
- Wyoming was the birth state of the LLC so it has the longest statutory history
- Enhanced protection for Members, including single-Member LLCs
- At this time Wyoming does not require that you name Managers or Members on Articles or Annual Reports
- Annual Report fee is only $50 if there are no assets located in Wyoming
- No corporate tax or personal income tax
- Minimal paperwork required
- Wyoming has a chancery court
* PLEASE NOTE: There are a few limitations to the Qualified Business Income deduction such as W-2 wage limitation; service business limitation and higher income level limitation. Please seek advice from YOUR tax professional for your specific situation/goals.
Some information contributed by Elite Bookkeeping & Tax Services.
If you are doing business in another state, we can help you register there. Call us today at (800) 891-5987.